Computer-implemented trading in freight derivatives and techniques therefor

ABSTRACT

Computer-implemented techniques via a computer network for allowing freight industry participants, including shippers, forwarders, carriers, and market makers to securely and conveniently trade in freight capacity, which is destined to be transported via a plurality of transportation modes, are disclosed. Trading is enhanced by providing user-appropriate forecast data and rating data to traders, while various data display restrictions are imposed to achieve security and to respect the confidentiality needs of the freight industry participants.

[0001] The present application claims priority from the followingapplications “Freight Futures Trading Rules of Engagement”, ApplicationNo. 60/457,164, filed by the same inventors herein on Mar. 25, 2003,“Presenting Futures and Options in Freight”, Application No. 60/457,167,filed by the same inventors herein on Mar. 25, 2003, “Freight FuturesUser Interface” Application No. 60/457,166, filed by the same inventorsherein on Mar. 25, 2003, “Standardization of Freight Capacity”,Application No. 60/457,165, filed by the same inventors herein on Mar.25, 2003, and “Freight Futures Liquidity Strategy”, Application No.60/457,163, filed by the same inventors herein on Mar. 25, 2003, all ofwhich are assigned to the same assignee Future Freight Corporation andall of which are incorporated herein by reference.

BACKGROUND OF THE INVENTION

[0002] The freight industry involves moving goods, e.g., bulk, liquid,containers, and the like, between destinations using a variety oftransportation modes. Over the years, the industry has evolved to thepoint whereby the vast majority of the shipments today generallyinvolves four major participants: 1) the carrier who operates thetransportation equipment, 2) the shipper who tends to be the producer ofthe goods to be shipped, 3) the forwarder who aggregate goods fromshippers to more efficiently employ the capacity offered by the carriersbetween destination points, and 4) market makers who derive profit fromtrading in shipping contracts but improve liquidity in the freightmarket as a byproduct of their participation.

[0003] The multi-modal freight industry. Shipment between any twodestinations may involve multiple transportation modes and multiplepossible routings. To facilitate discussion, FIG. 1A shows somehypothetical shippers, forwarders, and carriers involved in shippingbetween Hong Kong (HKG) and Reno, Nev. (Reno). In this example, shipper102 and shipper 104 may employ trucks to transport the goods to theforwarder 106 in Hong Kong to be shipped to a receiving entity in Reno.Depending on the nature of the goods to be shipped, the transportationrequirements specified by the shippers, and other factors, forwarder 106generally tries to look for the lowest cost shipment method that canfulfill the shipping orders.

[0004] For example, forwarder 106 may choose to route the goods viaAlaska by air (108) to arrive at a warehouse at the San FranciscoAirport (SFO). From SFO, the goods may be transported by air (110) toReno, or may be sent by truck (112 a and 112 b) to Reno via Sacramento(SAC). Forwarder 106 may also choose to ship by sea (114) to the Oaklandport (OAK). From OAK, the goods may be shipped via truck (116 and 112 b)to Reno via Sacramento (SAC). Alternatively, forwarder 106 may choose toship by air (118) to Los Angeles (LAX). From LAX, the goods may beshipped via truck (120 and 112 b) to Reno via Sacramento (SAC) or viaair (122) directly to Reno. As can be appreciated from FIG. 1A, freightshipment involves a multiplicity of modes (e.g., sea, air, or truck) androutes.

[0005] Long-term contracts and spot market purchases. Generallyspeaking, the relationships among shippers, forwarders, and carriers arehistorically governed by two mechanisms: spot market purchase andlong-term contract. To facilitate discussion, FIG. 1B shows that therelationship between forwarder 130 and carrier 132, which is governed byspot market purchase 136 and long-term contract 134. Forwarder 130 maywish to enter into a long term contract 134 with a carrier 132 in orderto lock in the price and to assure capacity at a future date. Likewise,carrier 132 may wish to lock in the price and to ensure that thecapacity will be sold in advance to minimize the risk ofunderutilization. An example long-term contract may be an agreement topurchase 30 tons of shipping for $3.00 per ton on a ship leaving fromHong Kong to OAK 6 months from the date the long-term contract issigned.

[0006] A spot market purchase represents a purchase by forwarder 130 ofthe capacity needed to ship goods in the immediate near future. Anexample spot purchase may be a purchase of shipping capacity of 20 tonson a ship leaving in two days from Hong Kong to OAK. The time framebetween the time a spot market purchase is made and the time the goodsis transported may be as little as a few hours to allow for loading, ormay be as long as a week or longer, depending on the custom of theparticular industry segment concerned. In making a spot market purchase,the forwarder 130 must typically pay what the market would bear at thetime.

[0007] Capacity and Pricing Risks. The decision regarding which mode(s)and route(s) to employ for a particular shipment of goods is a complexone, involving factors such as the maximum permissible time en-route,the price paid by the shipper, and the availability of shipping capacityfrom the carriers (which itself is complex and may involve other factorssuch as the nature of the goods shipped, weather, fuel cost, laboravailability, etc.). Likewise, the decision regarding whether to employa long-term contract, a spot-market purchase, or a combination thereofto fulfill a shipping order is a complex one, involving a multitude offactors. These factors change all the times, thereby continuallyintroducing pricing and capacity risks for shippers, forwarders, andcarriers.

[0008] For shippers, an overriding concern is the ability to ship goodsin a timely manner. Some shipper cannot tolerate capacity starvation,which is a condition characterized by an insufficient capacity to shipthe goods in a timely manner. To minimize such risks, a shipper wouldenter into long-term contracts with forwarders or carriers to ensurethat the capacity is guaranteed for certain critical shipments at futuredates.

[0009] Another risk is overpurchasing, which may occur when the shipperbuys more capacity under a long-term contract than required at shipmenttime. To mitigate the overpurchasing risk, the shipper may purchase lessthan the required capacity under long-term contracts, and may make upthe difference using spot-market purchases.

[0010] Both long-term contracts and spot-market purchases involvepricing risks. For example, at the time of shipping, the spot-marketprice may be much higher than the long-term contract price, making thespot-market purchase extremely costly for the buyer (e.g., the forwarderif capacity starvation is to be addressed via spot market purchases).Conversely, the spot-market price may be much lower than the long-termcontract price. In this situation, it may be said that the buyeroverpaid in exchange for a lower risk of capacity starvation.

[0011] Forwarders of course would like to maximize profits by buyingshipping capacity from carriers at the lowest cost possible and sellingcapacity to shippers at a highest price that can be obtained. If aforwarder miscalculates and purchases too little capacity from carriers,that forwarder risks defaulting on existing long-term contracts withshippers. In this case, the forwarder must purchase capacity on the spotmarket to make up the difference at shipment time. Again, at the time ofshipping, the spot-market price may be much higher than the long-termcontract price with the shipper, lowering or eliminating any profit forthe forwarder. Conversely, the spot-market price may be much lower thanthe long-term contract price with the shipper. In this situation, theforwarder benefits since it can fulfill the existing long-term contractswith shippers using capacity bought at a much lower spot-market price.

[0012] The same considerations exist in the relationship between aforwarder and the carriers. If a forwarder miscalculates and purchasestoo little capacity from carriers, that forwarder risks defaulting onexisting long-term contracts with shippers. In this case, the forwardermust purchase capacity on the spot market to make up the difference atshipment time. Again, at the time of shipping, the spot-market price maybe much higher than the long-term contract price with the shipper,lowering or eliminating any profit for the forwarder. Conversely, thespot-market price may be much lower than the long-term contract pricewith the shipper. In this situation, the forwarder benefits since it canfulfill the contract with capacity bought at a much lower spot-marketprice.

[0013] Carriers have fixed assets and perishable products in the form oftransportation means (e.g., planes, trains, trucks, ships) that mustleave on time irrespective whether the capacity is sold. Accordingly, acarrier is typically highly concerned with selling all of its availablecapacity before the time of departure. While long-term contracts withforwarders guarantee that the capacity will be sold, the use oflong-term contracts may lower a carrier's potential profit. This isbecause the profit margin per shipping unit on a long-term contract istypically (but not always) lower than the profit margin obtainable whensold on the spot market.

[0014] A carrier's potential profit may be lowered through factors thatare not in their control. For example, war, changes in fuel pricing,changes in tourism patterns (which affect the number of airplanes flyingbetween two destinations, for example), labor strikes, etc., may affectthe overall availability of capacity, causing fluctuations in thespot-market pricing. If, at the time of shipping, the spot-market priceis much higher than the long-term contract price with the forwarder,every ton shipped under a long-term contract instead of pursuant to aspot-market purchase lowers the profit that the carrier could haveobtained. Conversely, the spot-market price may be much lower than thelong-term contract price with the forwarder. If the carrier did not fillthe transport with long-term contract goods, the carrier will need tosell the remaining capacity on the spot market, in effect carrying someof the goods at a lower price than the carrier could have charged undera long-term contract.

[0015]FIGS. 1C and 1D illustrate these concepts of pricing risk andcapacity risk. As shown in FIG. 1C, if the forwarder guesses incorrectlyand the price is $2.00 per ton on the spot market at the time ofperformance T1 of FIG. 1C, the forwarder in effect overpaid by $1.00 perton for the capacity employed. On the other hand, if the price is $5.00per ton on the spot market at the time of performance T1, the carrierwould have “lost” $2.00 per ton of potential profit for every ton ofshipping performed under a long-term contract instead of under a spotmarket order.

[0016] With regard to capacity risks, if the forwarder fails to secureenough capacity via long-term contracts as shown in the example of FIG.1D, the forwarder may be forced to purchase the remaining requiredcapacity on the spot market if possible. In some cases, there iscapacity on the spot market but such capacity, when bought on a shortnotice, may be extremely expensive. In other cases, there may be nocapacity at any price.

[0017] Unequal access to information. Although the participants all haverisks, each participant has a different degree and type of risk. This ispartly due to the fact that the type and quality of informationavailable to each participant is different.

[0018] Consider the factors that influence the decision making processof shippers and forwarders with regard to freight shipment. Forwardersand shippers base their freight shipping decisions (e.g., long-termcontracts versus spot contracts, price, volume, etc.) partly on theirbest guesses regarding the aggregated demand from all shippers as wellas the aggregated shipping capacity at shipping time.

[0019] If the aggregate shipping volume from shippers is high atshipping time, the spot market price would also tend to be high asshippers and forwarders compete for the available shipping capacity. Theaggregated demand from shippers may depend on factors such as theconsumer demand for goods, inventory level at retailers, etc. Withrespect to current and forecasted shipping volume, shippers tend to havethe most information, followed by forwarders and then carriers. Line 180on the plot of FIG. 1E illustrates the distribution of shipping volumeinformation among the shipper, the forwarder, and the carrier. Sincecarrier 174 owns fixed, perishable assets in the form of departingtransports, the carrier bears the highest risk for incorrectlyforecasting the shipping volume. This is shown by line 182 of FIG. 1E.

[0020] The available capacity from the carriers must also be taken intoconsideration. Factors such as weather, war, labor strikes, fuel cost,tourism patterns, etc. all determine the shipping capacity available atany given point in time. Carrier 174 naturally has a deeperunderstanding of their own capacity and capacity trends over time andconsequently has an edge over forwarder 172 and shipper 170 indetermining the current capacity and forecasting the future capacity.This is shown by line 184 of FIG. 1E. Since shipper 170 is at thehighest risk if there is insufficient capacity to ship the goods whenneeded (e.g., capacity starvation), the highest capacity-related risk isborne by shipper 170. This is shown by line 186 of FIG. 1E.

[0021] Some known approaches. Attempts have been made to streamline theprocess of matching buyers and sellers in the freight industry. Insteadof leaving shippers, forwarders, and carriers to negotiate long-termcontracts and conduct spot purchases directly with one another,electronic exchanges have been created. Using modern computers and aworld-wide network such as the Internet, sellers can post availablecapacity and buyers can post orders for viewing. Tools are alsoavailable to match up orders and capacity based on the terms posted sothat the buyers and sellers can efficiently find one another.

[0022]FIG. 2 shows a prior art electronic exchange 202 for facilitatingcommerce between carrier 204, forwarder 206, and shipper 208. Viaelectronic exchange 202, carrier 204 can post future capacity and alimit price 210 (e.g., 300 tons of capacity from Hong Kong to Oakland,available on Jun. 10, 2004 at no less than $1.50 per ton). This post maybe utilized by forwarder 206 or shipper 208 to satisfy their shippingrequirements. Forwarder 206 may likewise post either the availablecapacity (and desired price) 212 that it has purchased earlier or therequired capacity (and maximum price) 214 that it wishes to purchase.Shipper 208 may likewise employ electronic exchange 202 to post shippingorder and limit price 216 (e.g., 10 tons from Hong Kong to Oakland onJun. 10, 2004 at no more than $1.60 per ton). Employing a matchingalgorithm, electronic exchange 202 may then match up buyers (e.g.,shippers or forwarders) with sellers (e.g., carriers or forwarders). Thematches are forwarded by the respective parties via arrows 232, 234, and236 as shown.

[0023] In addition to facilitating direct purchases of capacity betweenbuyers and sellers (known as forward contract transactions), electronictransaction system may also facilitate the trading of futures incapacity between specific destinations. A futures contract, as is wellknown in the commodity industry, is a contract entered into between twoparties, to specify the contractual terms to be performed at a specifiedpoint in time in the future. A futures contract in bulk freight mayspecify, for example, 100 tons of bulk shipping from Hong Kong toOakland leaving on Jul. 1, 2004 at $1.80 per ton. In this sense,capacity futures are treated in the same manner as well-known futures incoffee, pork, sugar, etc. Further, just like their counterparts in theagricultural futures market, individuals in the capacity futures marketcan employ futures contracts to speculate and profit on tradespertaining to freight shipments between specific destinations. Avariation of futures trading is index trading in which an index (orweighted average or mean between high and low prices) of transactionprices is calculated in real-time. Trader can in essence, bet on futurevalues of the index, the gains or losses being proportional to thedifference between the value estimated by the trader (the strike) andthe actual value at the pre-agreed date. Index futures are cash settledand are routinely used in the financial industry to manage risks.

[0024] Although prior art electronic exchange 202 is useful for matchingup buyers and sellers, there are shortcomings. Existing prior artelectronic exchange systems have been uni-modal, i.e., limited to oceanshipping of bulk goods. Two such electronic exchanges are known to theinventors: Imarex (www.Imarex.com) and Baltic Exchange(www.balticexchange.com). This type of prior art electronic exchange isnot well-suited to handle shipping between destinations that can beserved by multiple shipping modes (e.g., sea, truck, train, or air)and/or destinations that may be routed through different intermediateshipping points (e.g., Alaska, San Francisco, Los Angeles, Oakland,Sacramento in the aforementioned example of FIG. 1A).

[0025] Further, participants in such electronic exchanges still sufferfrom the aforementioned uneven distribution of information. For example,carriers still suffer from a lack of reliable information regardingshipping volume and shippers still do not have reliable informationregarding capacity even though their published orders can be matchedmore readily via the prior art electronic exchange system. This lack ofreliable information also affects the ability of speculative futurestraders (referred to herein as market makers) to intelligently evaluatetrades in capacity futures, causing some traders to shy away fromparticipating fully or at all in the capacity futures market. In turn,liquidity suffers.

[0026] The inherent inefficiency in the freight market has createdopportunities for electronic capacity aggregators. As understood by theinventors, an electronic capacity aggregator such as one attempted bythe now-defunct Enron Corporation of Houston, Tex., attempts to createscarcity by buying up a high percentage of the trucking capacity betweentwo destinations (e.g., between Austin, Texas and San Jose, Calif.). Thecapacity is purchased via future contracts from carriers, which theelectronic capacity aggregator then attempts to resell to forwarders(and perhaps even shippers) at a profit.

[0027] By exerting a high degree of market control, i.e., over thetrucking capacity available, such electronic clearinghouses can minimizepricing risk to themselves. In other words, by consolidating most of thetrucking capacity between two destinations under their control, anelectronic clearinghouse has almost perfect information regarding theshipping capacity available between two destination points and cancreate artificial scarcity and maximize profit by controlling therelease of this now scarce commodity to forwarders and shippers.

[0028] Again, this model has limited applications and does nothing toaddress the information disparity among the existing participants or themulti-modal nature of the freight industry. Although some may argue thatthe use of an electronic clearinghouse provides open pricing informationto participants so they can be aware of how much capacity would cost forany particular route for any particular date, it may also be argued thatsuch clearinghouse arrangement increases the risk of abuse if theclearinghouse succeeds in completely or nearly completely controlshipping capacity between any two destination points.

SUMMARY OF INVENTION

[0029] The invention relates to a network-based, computer-implementedmethod of enabling a first user to purchase derivatives in freightcapacity transported via at least two modes of transportation between afirst location and a second location. The method includes receivingcapacity release data from a plurality of carriers, the capacity releasedata pertaining at least to the two modes of transportation. The methodalso includes bundling capacity releases in accordance with a geographicbundling criterion, thereby creating a plurality of available derivativecontracts. The method further includes receiving a derivative purchaserequest from the first user for capacity between the first location andthe second location, the derivative purchase request having contractrequirements that specify at least a shipment volume and a performancetime. The method further includes obtaining from the plurality ofderivative contracts a plurality of potentially suitable derivativecontracts that satisfy the contract requirements. The methodadditionally includes selecting a subset of the plurality of potentiallysuitable derivative contracts to satisfy the derivative purchaserequest, the subset including at least a first derivative contract for afirst mode of the two transportation modes and a second derivativecontract for a second mode of the two transportation modes, the twotransportation modes represent two from a set of air mode, sea mode,rail mode, and truck mode. The method further includes rendering theplurality of potentially suitable derivative contracts displayable in afirst data section of a computer window on a computer display screen forviewing. The method also includes simultaneously rendering user-specificforecast data displayable in a second data section of the computerwindow, the user-specific forecast data pertaining to demand forecastsby shippers between the first location and the second location, theuser-specific forecast data does not include forecasts associated withany shipper that has not expressed a prior implicit or explicitauthorization for the first user to view their forecast data.

[0030] In another embodiment, the invention relates to a network-based,computer-implemented method of enabling a market maker to trade inderivatives in freight capacity transported via at least two modes oftransportation between a first location and a second location, the atleast two modes representing two of a set that includes air, sea, rail,and truck. The method includes receiving capacity release data from aplurality of carriers, the capacity release data pertaining at least tothe two modes of transportation. The method also includes bundlingcapacity releases in accordance with a geographic bundling criterion,thereby creating a plurality of available derivative contracts, a numberof derivative contracts in the plurality of available derivativecontracts being smaller than a number of capacity releases representedby the capacity release data. The method additionally includes renderingthe plurality of available derivative contracts displayable in a firstpanel of a computer window on a computer display screen. The methodfurther includes simultaneously rendering aggregated forecast datadisplayable in a second data section of the computer window, theaggregated forecast data pertaining to demand forecasts by a pluralityof shippers between the first location and the second location, theaggregated forecast data does not reveal data that links a specificshipper to a specific shipment quantity.

[0031] The invention further includes other computer-implementedtechniques for fulfilling shipment orders and facilitating trading incapacity futures and/or options involving shippers, forwarders,carriers, and market makers as detailed hereinbelow. Additionally, theinvention also includes computer hardware, computer network, andcomputer software for electronically fulfilling shipment orders andfacilitating trading in capacity futures and/or options involvingshippers, forwarders, carriers, and market makers as detailedhereinbelow

[0032] These and other features of the present invention will bedescribed in more detail below in the detailed description of theinvention and in conjunction with the following figures.

BRIEF DESCRIPTION OF THE DRAWINGS

[0033] The present invention is illustrated by way of example, and notby way of limitation, in the figures of the accompanying drawings and inwhich like reference numerals refer to similar elements and in which:

[0034]FIG. 1A shows some hypothetical shippers, forwarders, and carriersinvolved in shipping between Hong Kong (HKG) and Reno, Nevada (Reno)using multiple possible modes and alternate routes.

[0035]FIG. 1B shows that the relationship between forwarder and carrier,which is governed in part by spot market purchases and long-termcontracts.

[0036]FIGS. 1C and 1D are examples facilitating the discussion of theconcepts of pricing risk and capacity risk.

[0037]FIG. 1E shows the existing distribution of information and risksamong participants.

[0038]FIG. 2 shows a prior art electronic exchange for facilitatingcommerce between a carrier, a forwarder, and a shipper.

[0039]FIG. 3 shows, in accordance with an embodiment of the presentinvention, a high-level functional architecture of the FutureFreightSystem.

[0040]FIG. 4A shows exemplary forecasts from individual shippers over aperiod of time for a particular end-to-end route.

[0041]FIG. 4B is a chart showing an exemplary mix of long-termcontracts, futures, options, and spot market purchases that may fulfillthe shipping needs forecasted as a function of time.

[0042]FIG. 4C shows how the capacity requirement of a given shippingorder from a shipper can be fulfilled by a mix of long-term contracts,futures contracts, option contracts, and spot-market purchases using therisk management tools provided by the FFS.

[0043]FIG. 5A is a chart showing the relationship between time andcapacity released, as measured by the number of futures contracts sold,for any particular segment.

[0044]FIG. 5B depicts an analogous graph as FIG. 5A with options dataline also shown.

[0045]FIG. 6 illustrates, in an embodiment, a formula for calculating anindex for a particular mode between two geographic points for aparticular time period.

[0046]FIG. 7 conceptually show, in accordance with an embodiment of theinvention, how the FFS facilitates and encourages trading in capacityfutures.

[0047]FIGS. 8A and 8B show, in accordance with one embodiment of thepresent invention, how the FutureFreight system fulfills a hypotheticalHong Kong-Reno multi-modal shipping order with the participation of allparticipants.

[0048]FIG. 9 illustrates, in an embodiment, the process by which marketmakers limit risks for carriers.

[0049]FIGS. 10A and 10B show, in accordance with one embodiment of thepresent invention, the order fulfillment process for carriers andforwarders.

[0050]FIG. 11 shows, in accordance with one embodiment, a contracttemplate for allowing a participant to specify a new contract to buy orsell to FutureFreight.

[0051]FIG. 12A shows, in accordance with one embodiment, a control panelas seen by the forwarder when transacting futures.

[0052]FIG. 12B shows, in accordance with one embodiment, a control panelas seen by the carrier when transacting futures.

[0053]FIG. 12C shows, in accordance with one embodiment, a control panelas seen by the carrier when transacting options.

[0054]FIG. 12D shows, in accordance with one embodiment, a control panelfor trading component segments between the time futures contracts expireand their performance.

[0055]FIG. 13 shows, in accordance with one embodiment, a tool forpermitting the shipper to specify the shipper confidence level (SCL).

[0056]FIG. 14 shows, in accordance with one embodiment, the variousfactors comprising the shipper confidence level (SCL).

[0057]FIG. 15 shows, in accordance with one embodiment of the invention,how FFS calculates both the qualitative and the quantitative assessmentvalues for a shipper's forecast.

DETAILED DESCRIPTION OF PREFERRED EMBODIMENTS

[0058] The present invention will now be described in detail withreference to a few preferred embodiments thereof as illustrated in theaccompanying drawings. In the following description, numerous specificdetails are set forth in order to provide a thorough understanding ofthe present invention. It will be apparent, however, to one skilled inthe art, that the present invention may be practiced without some or allof these specific details. In other instances, well known process stepsand/or structures have not been described in detail in order to notunnecessarily obscure the present invention.

[0059] In accordance with embodiments of the present invention, there isprovided a networked multi-modal, multi-route freight transaction andtrading system (referred to herein as the FutureFreight system or FFS)for allowing shippers, carriers, and forwarders to more efficientlyconduct freight-related transactions, as well as allowing market makersto participate more fully in the freight market. The participation bymarket makers, utilizing the products created by the FFS, improvesliquidity in the freight market to the degree heretofore unattainable.

[0060] In an embodiment, the FFS takes into account the multi-modalnature of the freight industry and packages orders in such a way thatthey can be readily fulfilled using one or more transportation modes(e.g., air, sea, trucking, and/or rail). Furthermore, the FFS takes intoaccount the fact that routing between two destination points can beaccomplished using a multitude of intermediate shipping points. Bytaking into account both, the FFS can provide shippers, forwarders, andcarriers with more choices to fulfill shipping orders.

[0061] To illustrate this point, consider the example of FIG. 1. Unlikethe prior art electronic exchange system that can handle only a singlemode (i.e., ocean-going bulk as with the Imarex or BalticExchangewebsites), the FFS takes into account alternative modes when routingbetween destination points. The various alternate modes (e.g., airversus sea between Hong Kong and San Francisco) increase the number ofcarriers available to service a particular shipping order, whichincreases both capacity and competition. Furthermore, the FFS takes intoaccount the fact that routing between Hong Kong and Reno can employ anyof the intermediate destinations (e.g., Alaska, SFO, LAX, SAC). Thevarious alternate routes, in combination with the various alternatemodes, further increase the number of forwarders and carriers availableto fulfill a particular shipping order.

[0062] The FFS is well-suited to provide liquidity in the trading ofcapacity futures. By increasing the number of choices available tofulfill orders, a larger number of future contracts can be created andtraded, which enhances liquidity. With improved liquidity, the marketfunctions more efficiently, resulting in potential cost reductions,fairer pricing and reduced risks for shippers, forwarders, and carriers.

[0063] In an embodiment, the FFS provides tools for breaking up routesassociated with orders into component segments. The component segmentscan then be bundled to enhance trading. Tools are also provided toassemble the segments into end-to-end routes for performing the contractat the time of contract performance. If any component segment of anassembled end-to-end route is not desirable by the shipper, forwarder,or carrier, that component segment can be traded in the adjustmentmarket trading facility provided by the FFS.

[0064] To illustrate this point, consider again the example of FIG. 1.In FIG. 1, if the entire end-to-end route between Hong Kong and Reno isconsidered an atomic unit for trading purposes, there exists a finitenumber of Hong Kong to Reno orders for any particular day in the future.This is because Reno is a relatively remote destination, and only a tinypercentage of the shipments that happen daily is expected to be shippedto Reno.

[0065] However, if the orders (either buy or sell from any of theparticipants) can be broken into segments, and with each of thosesegments considered an atomic unit for trading purposes, there will be avastly larger number of similar segments to and among variousintermediate points. For example, a shipping order between Beijing,China may also traverse Hong Kong and SFO on the way to Salt Lake City,Utah. The Hong Kong-to-SFO segment of this Beijing-Salt Lake City ordermay be combined with the Hong Kong-to-SFO segment of the aforementionedHong Kong-Reno order for trading purposes in a larger futures contractbetween Hong Kong and SFO.

[0066] Thousands or millions of orders may similarly be broken up andcombined using any combination of modes and intermediate points tocreate various bundled, tradable futures contracts. Geographic groupingmay also be employed to increase the size of the bundles, if desired.For example, a component segment from Hong Kong-SFO may be bundledtogether with a component segment from Taiwan to Oakland in a EastAsia/America West Coast bundle. Time-based grouping may also beemployed. For example, component segments serving two destination points(e.g., Hong Kong-SFO) may be bundled if they occur within a predefinedor programmable time window (e.g., 3 days, 1 week, 2 weeks, one month,etc.). There is of course no requirement that component segments have totake place consecutively within the time frame (e.g., first Monday inNovember and 15^(th) of November can be grouped into the “November”bundle). Additionally or alternatively, both time-based grouping andgeographic grouping or bundling (e.g., all component segments from EastAsia to America West Coast in the month of March, 2004) may also beemployed simultaneously to increase the value in each tradable futurecontract. Additionally or alternatively, bundling or grouping may beapplied to end-to-end freight orders, without having to first breakingthe orders into component segments.

[0067] With grouping or bundling, the volume in each tradable futurescontract increases, which in turn increases its profit potential andattraction to market makers. In this manner, the FFS increases marketmakers' participation, and in the process improves liquidity as buyersand sellers in the adjustment market can have a better assurance thatthey can quickly buy, sell, and trade various futures contracts.

[0068] Once the futures contracts expire and after the trading phase bymarket makers is completed, the bundled segments may then be unbundled.As mentioned, the unbundled segments may then be employed to create thecomplete end-to-end order for booking on the various carriers forperformance. An adjustment market mechanism is provided to allowforwarders to trade or exchange undesirable component legs. For example,if a forwarder secures a Taiwan-Oakland component leg as part of afutures purchase but is more interested in a Hong Kong-SFO component legto service the same East Asia/America West Coast transportation need fora particular freight order, the forwarder may employ the adjust marketto perform the trading or exchange after futures expiration.

[0069] To further facilitate freight transactions (which may belong-term or spot market) and the trading of capacity futures, the FFSalso provides tools to collect shipping volume and shipping capacitydata, to qualitatively and quantitatively assess forecasts pertaining toshipping volume and shipping capacity, and to distribute suchinformation among the participants in a confidential, secure manner.Tools are also provided to allow participants to analyze and managerisks. As such, the FFS seeks to reduce the disparity in the amount ofinformation possessed by various participants. With improvedinformation, the participants are able to reduce their pricing risks andcapacity risks in employing futures, long-term contracts and spot-marketpurchases to handle freight shipments.

[0070] The features and advantages of the present invention may bebetter understood with reference to the figures and discussions thatfollow. FIG. 3 shows, in accordance with an embodiment of the presentinvention, a high-level functional architecture of the FFS. There isshown a FFS portal 302 through which shipper 304, carrier 306, forwarder308, and market makers 358 may conduct transactions. FFS portal 302 istypically an Internet Portal and may be implemented via, for example, anappropriate web server.

[0071] An interface layer 310, which may be implemented using static(HTML) interface and real-time (applet) interface in an embodiment,facilitates communication between portal 302 and a plurality of backendmodules. These modules include, for example, forecast delivery module322, futures and options module 324, adjustment market module 326,routing module 328, reporting module 330, financial module 332, and riskmanagement module 334.

[0072] Forecast delivery module 322 represents the module for collectingthe capacity and shipping volume data from the carriers and shippers,respectively. This may include historical data, spot-market data andforecast data regarding capacity and shipping volume (which itselfincludes origination and destination identification, volume, time frame,any constraints, etc.). The forecast engine then aggregates the data inaccordance with the needs of other data consumers, such as forwarders,carriers, or shippers.

[0073] For example, a forwarder may wish to obtain forecast dataspecific to a particular shipper for a particular time frame. As anotherexample, a forwarder may wish to obtain forecast data pertaining to agroup of shippers whose goods originate from a particular location in aparticular time frame. As a further example, a carrier may wish toobtain forecast data for a particular time frame pertaining to aparticular mode, a particular geographic segment, a particular region,etc.

[0074] If appropriate, forecast delivery module 322 works in conjunctionwith risk assessment module 334 to compute the risk associated with theforecast data. In an embodiment, the shipper may be asked to furnish aplurality of parameters (e.g., 8 in one case) that reflect the riskprobabilities associated with various aspects of the forecast data. Forexample, the risk probability parameters may include location, age ofproject, lane stability, capacity, etc. These risk probabilityparameters are then aggregated into a single value known as the shipperconfidence level, which may then be employed to quantify the risk levelassociated with the furnished data from that particular shipper. Inanother embodiment, the historical forecast data from a particularshipper (i.e., forecast data supplied by a particular shipper in thepast) is compared with the historical actual shipment data from thatparticular shipper to determine the extent of the difference between thehistorical forecast data and the actual shipment data. When taken overmany samples, this difference reflects the risk associated with theforecast data from that particular shipper.

[0075] Risk associated with a forecast can be computed in several ways.For instance, the provider of the forecast can provide a confidencelevel, which is his own estimate of the statistical likelihood that theforecast will represent actual shipments. The confidence level can beimproved by providing the forecaster with a decision tree that lists themain cause of forecast variability and decomposes the process ofestimating the overall confidence level into smaller, easier to estimateconfidence levels. There is an inherent limitation to the method forhumans when estimating risks (see The Economist, “A Survey of Risk, p 5,Jan. 24-30, 2004,http://www.economist.com/displaystory.cfm?story_id=2347791). Anotherapproach is to compare historical forecasts with historical actual. Thismethod has the advantage of eliminating the human factors and providingthe ability to calculate risks for different time horizons and differentlevels of aggregation. A two-week forecast issued at three months maycontain more or less risks than same forecast at two weeks. Similarly, atwo week forecast may for instance, be more risky than a quarterlyforecast. A historical approach can more accurately measure thesedifferences and provides an unbiased tool for calculating risks.

[0076] The FFS, functioning as a central communication hub,advantageously provides a ready platform for collecting anddisseminating such forecast data, which helps the various participantsmanage risks and the market makers in making more informed tradedecisions. In an embodiment, forwarders can see the data from only theirshipper customers with written permission. In an embodiment, carrierscan only see summarized data across a lane. In an embodiment, data thatis not shared is total capacity by carrier and demand by non-customershippers

[0077] Futures and option module 324 handles the futures and optionscontract creation, offer, and acceptance by the various participants aswell as by market makers 358 via trading system interface 354. Functionshandled by futures and option modules 324 include providing forms forfilling out orders, accepting posted orders, providing forms for fillingout capacity offers, and accepting posted capacity offers. The variousorders and capacity postings are then processed by routing module 328 todetermine the best routing possible given the requirements of the order(e.g., the nature of the goods shipped, time en-route, shipping mode,price, etc.) and the available capacity.

[0078] Routing module 328 also performs the end-to-end routing of orders(as described in 810) to identify the specific flight (air), tariff(truck), schedule (rail), or sailing (ocean) that will be applied to theFutures or Options contract. After routing the orders are sent to theAdjustment Market 326. using the parameters specified by the shippersand/or forwarders. Once the orders are routed, their routes may bebroken up into component segments and grouped to create futures andoptions products that are more tradable.

[0079] Once the shipping orders and capacity postings are processed intomore tradable futures or options contracts (e.g., combine shipmentcomponents from a plurality of small shipping orders into futurescontract for 500 tons between two intermediate shipping points), thecontracts are transmitted to trading system interface 354 for trading bymarket makers 358 using an appropriate options and futures tradingsystem.

[0080] Once a contract expires, it is ungrouped by adjustment marketmodule 326 and the end-to-end orders are reassembled. Via adjustmentmarket module 326, the segments can be adjusted by trading in theadjustment market. This adjustment market trading allows, for example, aforwarder to trade a 20-ton capacity on United Airlines for a 20-toncapacity on Singapore Airlines since there may exist a more advantageousfinancial arrangement between that forwarder and Singapore Airlines. Inthis manner, adjustment market module 326 allows the forwarders (andpossibly carriers) to trade on contracts or contract segments withsmaller volumes and shorter periods of time as final adjustments priorto contract execution. Since these volumes are generally very small,market makers typically do not participate in the adjustment markettrades. Market Module 326 also provides an opportunity for buyers toadjust parameters that are necessary for final execution of a shipment,yet not present in a futures or option contract. For instance, the exacttype of container, the ability to deliver bulk freight (vs. freight thathas been put into a container), the exact position aboard a vessel,special handling for perishable or dangerous goods. These last minuteparameters may require a surcharge (or a discount) from the carrierwhich can be negotiated through the adjustment market.

[0081] Reporting module 330 performs compiles and provides variousreports for shippers, carriers, forwarders, and market makers. Formarket makers, for example, reporting module 330 may provide dataregarding how many contracts were traded, how much money was gained (orlost), what futures and/or option contracts one current holds, and thelike. At the time of settlement, reporting module 330 works incooperation with financial module 332 in order to perform the settlementand clearinghouse functions as well as other financial functions (suchas checking the creditworthiness of the trading participants ordeducting FFS administrative fees from the proceeds from trading).

[0082] As shown in FIG. 3, there exists a contract and capacitymanagement module 336, which interfaces with futures and options module324, adjustment market module 326, and routing module 328.

[0083] The Contract and capacity management module 336 can be used byForwarder and Carriers to strategically position their capacity. Forinstance a carrier may want to establish rules to automatically releaseor retract capacity depending on market status. Such a rule could be theretraction of unsold capacity when price variations indicate that spotmarket prices should be higher than previously thought. In a similarfashion, Forwarders can establish rules such as the decision to cover anincreased percentage of the forecast as time nears expiration whenfuture prices are lower than that of their long term contracts.

[0084] Integration framework 350 is a layer of integration softwarewhose role is to take information from futures and options trading andprovide signals for operational activities. For example, providingenough data so that a Forwarder can book freight and generate an Air WayBill.

[0085] Real time integration layer 352 allows external systems tointeract with the FFS on a real-time or near real-time basis. Forexample, both the Trading System Interface 354 and the Interface toother exchanges 360 are coupled to the FFS via the real time integrationlayer 352. Interface to other exchanges 360 represents the interface toexternal exchanges, to allow FFS users ready access to other financialexchanges, such as other commodities exchanges. This aspect is discussedlater here.

[0086] Trading system interface 354 represents the interface to externalfutures and option trading systems, which allows market makers 358 totrade on the options and futures generated by futures and options module324.

[0087] Booking system interface 356 represents the interface to externalcarrier booking systems, which performs the actual bookings of capacityon flights, ships, trucks, and railway cars. These actual bookings arethen executed by the carriers at the time of contract performance.Booking System Interface 356 couples with integration framework 350(either directly or through real time integration layer 352).

[0088] There is also shown back-office module 320 for handlingback-office, system-support type operations. For example, account loginmanagement and security settings, confidential policy implementation,and help desk may represent functions implemented by back-office module320.

[0089]FIGS. 4A-4C show how forecasts and other factors influence thedetermination by a forwarder of how much capacity to contract for and atwhat price. In FIG. 4A, graphs 402A and 404A show some of the forecastsfrom individual shippers over a period of time for a particularend-to-end route (e.g., Hong Kong to Reno for May 2004). Generallyspeaking, the forecasts are sorted by relevant shipping parameters(e.g., bulk versus container versus liquid, permissible time-en-routeranges, etc.). These forecasts include the actual forecast data provided(402B and 404B) as well as the band of uncertainty or risk associatedwith the data (402C-402D and 404C-404D). This band of uncertainty iscomputed by applying the shippers' aggregate forecast rating andreflects the likelihood that the actual shipping capacity would fallinto the band given a certainty percentage. In one example, the risk maybe quantified by an 80% certainty that the actual capacity would fallwithin the bands.

[0090] These individual forecasts are then aggregated into an aggregatedforecast 406. In chart 406, there are included the forecast 407A, aswell as the band of uncertainty or risk, which are marked by referencenumbers 407B and 407C. In an embodiment, the aggregated forecast coversthe end-to-end route (e.g., Hong Kong to Reno). In another embodiment,the individual forecasts are broken up into segments, and the aggregatedforecasts are then specific to segments of the journey. Taken theaforementioned example of shipping from Hong Kong to Reno, one of theaggregated forecasts may cover shipping needs from all electronicmanufacturers for the month of May 2004 between Hong Kong and SanFrancisco (an intermediate point). In another embodiment, the aggregatedforecast may be further classified according to transportation mode(e.g., ocean shipping from all electronic manufacturers for the month ofMay 2004 between Hong Kong and San Francisco).

[0091] From aggregated forecast 406, chart 408 of FIG. 4B may beascertained to allow the forwarder to ascertain the right mix oflong-term contracts, futures, options, and spot market purchases thatwould most likely fulfill the shipping needs forecasted by the shippers.In chart 408, line 410 a represents the volume of shipping to be filledby long-term contracts; line 410 b represents the volume of shipping tobe filled by futures; line 410 c represents the volume of shipping to befilled by options. Line 412 a and line 412 b represent respectively theupper and lower boundaries of the band of uncertainty, while line 414represents the forecasted volume.

[0092] Long term contracts tend to be the least flexible. Thus thevolume of shipping to be satisfied via long-term contracts, representedby the area under line 410 a lies almost entirely within the area underline 412 b. That is, the volume of shipping purchased pursuant tolong-term contracts is mostly outside of the band of uncertainty, whichhas a lower boundary 412 b. In so doing, there is a strong likelihoodthat all the capacity purchased by long-term contracts will be filled.

[0093] Futures can be employed to satisfy the shipping needs that arenot filled by long-term contracts. Note that the volume of capacitypurchased pursuant to futures is typically much lower than theforecasted volume, rendering it highly likely that the volume ofcapacity purchased pursuant to futures contracts will be filled, even ifthe actual volume to be shipped is below the forecasted volume (line414).

[0094] Option contracts tend to be more expensive than future contractsfor a particular volume of shipping. Accordingly, options are employedto satisfy the volume of shipping that is not satisfied by a combinationof long-term contracts and futures. With reference to FIG. 4, theoptions volume is depicted by line 410 c. Note that the volume ofshipping purchased pursuant to option contracts is slightly below theupper boundary 412 a of the band of uncertainty, rendering it morelikely than not that the volume of shipping purchased pursuant to optioncontracts will be utilized.

[0095] If the forwarder needs more capacity at the time that theshipping order from the shipper is performed, spot market purchases canbe made. Note that the forwarders can employ pricing data from theoption and/or futures contracts in order to predict the spot marketpurchase price at any given point in time. For example, forwarders mayemploy the well-known Black-Scholes formula in order to predictspot-market pricing.

[0096] Chart 430 of FIG. 4C shows how the capacity requirement of agiven shipping order from a shipper can be fulfilled by a mix oflong-term contracts, futures contracts, option contracts, andspot-market purchases using the risk management tools provided by theFFS.

[0097] In an embodiment, a forwarder's determination of price and volumeto purchase depends on a variety of factors. These factors include theaggregation of shippers' forecasts data (which may be limited bygeography, time, shipping mode, etc.), any previous futures and/oroption contract purchase, existing long-term contracts, price discovery(e.g., using the Black-Scholes formula), risks attributable to capacityforecasts by shippers, etc. With these factors, buyers and sellers offreight futures can determine what price and volume to set for theirfreight futures and options contracts. For example sellers can determinewhether to issue more contracts and at what prices—and should it be at amarket price or limit price. Sellers can determine whether it is a goodtime to release capacity slowly over time, and how long to wait beforereleases and at what price (iceberg orders). Buyers can determine thehighest price they may want to pay for a lane, or whether to just issuea market order. Buyers can determine if it would be advantageous to overbuy and re-sell some of the contracts and at what price and time.

[0098] Carriers also need accurate forecast information from shippers inorder to determine the volume of shipping released for trading overtime. Since pricing of any commodity is related to the demand-supplyrelationship, an excessive supply of capacity at any point in time has atendency to depress price. To obtain high pricing, carriers desire torelease sufficient capacity to meet, or nearly meet forecasted demand.FIG. 5A is a chart showing the relationship between time and capacityreleased, as measured by the number of futures contracts sold, for anyparticular segment. At time t=0, the futures contracts for thatparticular segment for the time frame in question is released fortrading. At time t=t1, the futures contracts expire. At this time,market makers would have settled their futures contracts for cash andthe futures contracts are unbundled by the adjustment market module 326in order to match a futures contract to a specific flight number andultimately forms an end-to-end route to service the pending orders.Further, the segments may be traded by forwarders or carriers viaadjustment market module 326 to adjust for any preference. At some latertime, contract performance takes place and the goods are actually loadedon the appropriate transportation apparatus to be sent to thedestination.

[0099] In chart 502, line 504 shows the forecast demand for futurescontracts, as ascertained from capacity forecast data obtained fromshippers. The demand increases over time since the number of futurescontracts sold tend to increase as the date of expiration is approached.Line 506 shows the demand curve formulated by the shipper for timing therelease of futures contracts after other factors have been ascertained.

[0100] At any given point in time along the time axis (x axis), thecarrier considers not only the data from the shippers but also theexistence of any futures contracts that the carrier may havere-purchased if they oversold, any existing long-term contract forcapacity (which reduces the demand), the risk factor assigned to theshipper's forecasts. The Risk Factor is assigned by using a statisticalfunction based on variance between forecast and actual at regularintervals; this is done on a per location /customer basis; andaggregation is done on a customer level and by geography.

[0101] Another factor includes price discovery using the Black-Scholesformula. All these factors are taken into account in deriving line 506,which governs the capacity released and the price set by the shipper.

[0102]FIG. 5B depicts an analogous graph as FIG. 5A with optionsforecast data shown. In FIG. 5B, line 554 represents the forecasteddemand for futures and options, with line 558 represents the forecasteddemand for options alone. Line 556 shows the demand curve formulated bythe shipper for timing the release of futures contracts after otherfactors have been ascertained.

[0103] In accordance with an embodiment of the present invention,mode-specific indices are created for various segments to facilitatetrading and to improve liquidity in the adjustment market. An index is aweighted price average (e.g., by weight) of all shipments for aparticular mode (e.g., air, ship, rail, truck) between two geographicpoints during a period of time. An index may be used as a reference forpricing purposes, may be employed by market makers to trade, or may evenserve as an instrument of trade. Indexes can be used to mitigate risk.For instance if a forwarder has a contract with a shipper thatreferences a fixed price of $1.5/kg, he may purchase an option to sellthe index should the index get higher than $1.5/kg. The forwarder's gainwill be the difference between the index and $1.5 should the Index beabove $1.5/kg. If prices go above $1.5/kg, any loss incurred on theshipper's contract will be recovered by selling a corresponding amountof index contracts, thus guaranteeing the forwarder a no losstransaction.

[0104] For the purpose of defining an index, a geographic point may beas general as a region of the world (e.g., South-East Asia), a country(e.g., Japan), a city, a specific airport, a specific shipping port, acity, a trucking terminal or the like. FIG. 6 illustrates, in anembodiment, a formula for calculating an index for a particular modebetween two geographic points for a particular time period. In FIG. 6, νrepresents all shipments for a given mode between a pair of geographicpoints over a particular time period T.

[0105] An illustrated example of index calculation for trucking betweenSF and Reno could be:$\frac{\sum\limits_{{Transactionoveraregion},{timeperiod}}\quad {{Price}*{Weight}}}{\sum\limits_{Samedomain}\quad {Weight}}$

[0106] Where T is a time interval (ex one week) and C is the set oftrucking companies trading capacity during T between San Francisco andReno.

[0107] The FFS enhances liquidity in the shipping marketplace andfacilitates trading through many innovations. One of the innovationsdiscussed earlier involves breaking up end-to-end route into segmentsand combine segments from different end-to-end routes into a bundle ofsegments. By grouping similar legs together, the volume can be increasedfor each futures contract, which makes trading worthwhile for marketmakers. Furthermore, grouping has the function of reducing the differenttrading products (i.e., contracts for the myriads of end-to-end routecombinations, some into remote destinations with few contracts per week)into a smaller set (i.e., contracts for bundles of segments). Thecombination of a smaller set of tradable products and higher volume ineach product category stimulates interest on the part of the marketmakers.

[0108]FIG. 7 conceptually show, in accordance with an embodiment of theinvention, how the FFS facilitates and encourages trading in capacityfutures. As seen in FIG. 7, the FFS 702 works with all participants ofthe freight industry 704 to create tradable futures contracts bybundling. These capacity futures and capacity options contracts are thenemployed by market makers 706 for trading. This is shown by referencenumber 712 in FIG. 7.

[0109] Not only does the FFS create the futures and options contractsfor trading, the FFS also provides information and tools (708) to allowmarket makers to ascertain the pricing and risks associated with thefutures contracts created. Risk assessment assigns a reliability ratingto the information offered, which allows market makers to moreintelligently assess the trustworthiness of data.

[0110] Pricing indices, each of which is particular to a specific modebetween specific geographic points and over a specific time period, arealso offered. Further, forecasts regarding different factors that mayinfluence shipping capacity and pricing (e.g., fuel, labor, weather,road construction, tourism patterns, etc.) are also offered to themarket makers to assist in the futures contract evaluation process. Theconvenience of these evaluation tools greatly assists the market makersin trading in the capacity futures contracts, which enhances liquidity.

[0111] Furthermore, the FFS provides ready access 714 to the financialmarkets (e.g., option and futures markets in other commodities) to allowmarket makers to manage risks. Such access allows a market maker tohedge against unfavorable price movements, for example. Suppose that amarket maker bought a futures contract that specifies shipping by airbetween Hong Kong and Alaska at $1.50 per ton to commence on Sep. 5,2004. Suppose that when the market maker needs to sell, the spot marketprice for that leg is $1.40 per ton, due to reduced fuel cost. In thiscase, the market maker could have insulated himself from this risk bybuying an option in the fuel market that would allow him to profit by$0.10 if fuel price drops. By providing ready access to financialmarkets to enable market makers to minimize the pricing risks associatedwith capacity futures trading, the FFS makes trading in capacity futuresmore attractive to market makers, thereby encouraging trading andenhancing liquidity.

[0112] Another way that the FFS encourages trading is by making futurescontracts available for all the modes, and provide both mode-independentand mode-dependent information and analytical tools to allow marketmakers to compare, analyze, and assess all the future contracts.Consider the shipping of goods between San Francisco and New York, forexample. For this route, the goods may be shipped by air, by trucks, byrailway, or by sea. If shipping via one of the modes is impacted (e.g.,the closure of the Panama Canal, which impacts shipment by sea), thecapacity demand will change for the other modes and thus their pricingwill change. By having futures contracts for all modes and supportinginformation and tools available at their fingertips, the FFS trulyoffers a comprehensive trading environment that allows market makers tocapitalize on changes in the shipping market place and/or minimize therisks created by the changes.

[0113]FIGS. 8A and 8B show, in accordance with one embodiment of thepresent invention, how the FutureFreight system fulfills a hypotheticalHong Kong-Reno multi-modal shipping order with the participation of allparticipants. Note that not all shipping orders will require theparticipation of market makers and/or the use of the adjustment market.However, the sequence is discussed here to facilitate understanding.Shipper forecasts 802 a, 802 b, 802 c represent forecasts furnished byshippers utilizing the Hong Kong shipping terminal. The forecasts may befor any length of time. In this case, the forecasts cover, for example,for 12 months and may even be furnished with different levels ofgranularity (e.g., broken down by monthly or quarterly). The forecastsare aggregated into an aggregate forecast (block 804).

[0114] The aggregated forecast data allows a forwarder to decide on theamount of futures that the forwarder wishes to purchase (806). Withreference to FIG. 4B, the amount of futures purchased is shown by line410 b. In the present example, the amount of futures that the forwarderwishes to purchase (block 808) pertains to 100 tons of shipping, with adimension of 60 m3 and a service level of one day from Hong Kong to Renoduring some specified time period (e.g., first week of November 2004).In block 810, FutureFreight calculates all possible routings and modesand price these using current market prices.

[0115] The calculation in block 810 for all possible routes and modes tofulfill a particular futures purchase request by a forwarder employsfutures data released from, for example, the air and truck carriers. Theair carrier (830) releases, in this example, two blocks of capacity 832a and 832 b for purchase by forwarders as futures. Capacity block 832 astates, for example, that there is air capacity from Hong Kong toOakland (an airport in Northern California) for 300 tons at a price ofno less than $ 2.00/Kg on Friday in the first week of November 2004.Capacity block 832 b states, for example, that there is air capacityfrom Hong Kong to SFO (an airport in Northern California) for 200 tonsat a price of no less than $2.30/Kg on Friday in the first week ofNovember 2004. These blocks of capacity 832 a and 832 b are aggregated(block 834) by FutureFreight into an air futures contract for trading.

[0116] Similarly, truck carriers 840 may also release their capacity(block 842) for sale to forwarders. The various capacity blocks releasedby various truck carriers are aggregated into a futures contract fortrading by market makers (844). These various futures contracts aremanaged (block 846) by the Futures and Options Module in theFutureFreight system, which is shown by reference 324 of FIG. 3 in oneembodiment. Although only one air futures contract and one truck futurescontract are shown in FIG. 8A (as aggregated in blocks 834 and 844), itshould be understood that the FFS is capable of managing any number ofbundled future contracts for trading by the market makers. The bundledfuture contracts may be bundled in accordance with, for example,geography, location, route, mode, time frame, service level, and thelike.

[0117] Four possible combinations are shown in blocks 812 a, 812 b, 812c, and 812 d. These combinations are extracted from the bundles offutures contracts made available for trading by the FFS. Each of thesecombinations includes, as shown in representative block 812 a,route/mode data (e.g., air from Hong Kong to Northern California andthen trucking from Northern California to Reno) as well as pricing data(e.g., $ 3.00/Kg) and service level data (e.g., 1 Day). FutureFreightwill then reconcile buy and sell orders based on buyer/seller neutraland fair trading rules within, for example, the service level and priceboundaries. Examples of such trading rules includefirst-come-first-serve, bid-ask algorithms, and/or other neutral/fairtrading rules that have been developed for other types of futuresmarkets. The route/mode combination of block 812 b is selected due tothis transaction being acceptable (price and service level) to buyer andseller (block 816).

[0118] Note that the example of FIG. 8 assumes that all component legscan be satisfied (partially or wholly) using futures. In some cases,some shipment orders may involve one or more component segments forwhich there are no existing futures contracts to fulfill. In this case,FutureFreight may allow the fulfillment of those component segmentsusing a spot-market purchase arrangement, a long-term contractarrangement, and/or other non-futures (or non-option) arrangements.

[0119] In block 818, the individual future contracts for the bought. Inthis case, since two different routes and modes are employed, twodifferent futures contracts would be bought. The first futures contractcovers the air portion from Hong Kong to Southern California for$2.50/Kg (block 820 a) and the second futures contract covers thetrucking portion from Southern California to Reno for $0.45/Kg (block820 b). The result is the selection of the combination shown in block812 b.

[0120] As mentioned, the aggregation of various orders to sell capacityinto a larger bundle for futures trading (as is done in block 834 forair and block 844 for trucking) increases the attractiveness of futurestrading for market makers, which enhances their participation andthereby improves the liquidity of futures trading. Although theaggregated futures contract is traded as a single unit, FutureFreightmakes the information regarding a futures contract's constituentcapacity blocks available to traders if such information is desired fortrading purposes (e.g., a trader can ascertain via FutureFreight that anair futures contract from Hong Kong to Northern California involves 30%shipment from Hong Kong to SFO, 20% from Hong Kong to San Jose, and 50%from Hong Kong to Oakland).

[0121] Market makers (850) seek to earn trading profit by buying andselling these futures contracts up to the time of their expiration, alsousing the FutureFreight's Futures and Options Module (also known asMarket Module Price Reconciliation). As mentioned, FutureFreight alsofacilitates the trading of index futures, allowing market makers totrade based on the daily, weekly, or monthly index (e.g., weighted meanor mean of high-and-low) of futures contracts.

[0122] Upon the expiration of the futures contracts, the purchasedfutures contract(s) may be broken down in order to be traded on theadjustment (i.e., secondary) market and eventually booked on carriers.In FIG. 8B, the air futures contract of block 820 a (which the forwarderbought in FIG. 8A) is broken down by FutureFreight (block 860) into theconstituent capacity blocks, representing subsets of the actual capacityblocks provided by the air carriers (such as in blocks 832 a and 832 b).This reverses the process described earlier in connection with blocks832 a, 832 b, and 834. At this time, the forwarder has bought, as shownin block

[0123] Note that due to the trading activities of market makers and/orother participants, the air futures contract 820 a now has a currentmarket value of $3.00/Kg. This price is determined, in one case, whenthe market maker employs the Futures and Options Module to settles theexpired contracts for cash (blocks 880 and 882). Further, last minuteand day trading by any trader also affects pricing. The transfer pricecould be the last trade or and average during the last trading session,or another method.

[0124] In this example, three constituent capacity blocks are involved:862 a, 862 b, and 862 c. Capacity block 862 a covers a 33-ton airshipment from Hong Kong to LAX for a Friday departure in the first weekof November 2004 with a price of $3.00/Kg. Capacity block 862 b covers a47-ton air shipment from Hong Kong to San Diego for a Friday departurein the first week of November 2004 with a price of $3.00/Kg. Capacityblock 862 c covers a 20-ton air shipment from Hong Kong to LAX for aThursday departure in the first week of November 2004 with a price of$3.00/Kg.

[0125] In block 864, the forwarder may view the purchased constituentcapacity blocks and trade or exchange the undesirable constituentcapacity block(s) on the adjustment market (866). For example, aforwarder may decide that he does not wish to keep purchased capacityblock 862 c since that capacity block involves a Thursday departure,whereas other capacity blocks 862 a and 862 b involve a Friday departureas shown.

[0126] In the adjustment market, FutureFreight may publish the price ofcapacity block 862 c to be the same as the market price of the futurescontract (e.g., $3.00/Kg). The forwarder may also specify some otherprice (e.g., $4.00/Kg), hoping that someone may need to make the spotpurchase for capacity block 862 c. Due to supply and demand, the pricewill likely be determined by the market.

[0127] Further, the forwarder also needs to purchase another capacityblock to replace capacity block 862 c. For example, the forwarder maypurchase on the adjustment market another 20 T for Friday departure inthe first week of November 2004 from Hong Kong to SFO. In the end, theforwarder may end up with capacity blocks 862 a and 862 b and areplacement 20-ton capacity block from Hong Kong to SFO for Fridaydeparture as well, all for $2.75/Kg (as shown in block 868). Of course,if the forwarder already has a replacement capacity block from anotherof his orders, the forwarder may simply perform the swap himself withouthaving to resort to the adjustment market. This mode of adjustment ismore likely for large-scale forwarders, who tend to have a largediversity of capacity blocks to adjust internally without having totrade in the adjustment market. However, FutureFreight provides themechanism for adjustment market trading of capacity blocks for finaladjustment if such is needed.

[0128] Once the forwarder is satisfied with the constituent air capacityblocks purchased, the forwarder may forward the data to an externalbooking system (blocks 870 and 872) whereby air capacity is actuallybooked on various aircrafts for loading and shipping at the date ofperformance.

[0129] Although not shown in FIG. 8B, the purchased trucking futurescontract may be similarly broken down by FutureFreight into constituenttrucking capacity blocks, and the constituent trucking capacity blocksmay be adjusted, either internally with the forwarder's other truckingcapacity blocks or on the adjustment market. Further, once the forwarderis satisfied with the constituent trucking capacity blocks purchased,the forwarder may forward the data to an external booking system wheretrucking capacity is actually booked on various trucks for loading andshipping at the date of performance. This is shown in blocks 874 and 876of FIG. 8B.

[0130] FutureFreight also enables market makers to participate invarious ways to limit risks to carriers and forwarders. FIG. 9illustrates, in an embodiment, the process by which market makers limitrisks for carriers. Employing their knowledge of the industry and otherexternal market data (902), market makers may sell (904) put options,which grant the right to carriers to sell capacity at a fixed price on afixed date or in a fixed date range. These put options may be purchased(906) by carriers. By purchasing the put options, the carriers canessentially insure themselves from undue loss since the carriers can becertain that the capacity covered by the put options can always be soldto the market makers, who have the obligation to buy at a fixed price ona fixed date or in a fixed date range.

[0131] These transactions are accomplished via the Futures and OptionsModule, such as that shown in 324 of FIG. 3 and FIG. 9. Further, themarket makers may cover the risks associated with the sold put optionsby buying other options (908), such as those covering fuel, currency,etc. on other public markets to offset the risks associated with thesold put options. If the market maker covers his risks carefully, thereis profit to be made from the sale of the put options to the carrierswithout much risk to himself.

[0132]FIG. 9 also illustrates, in an embodiment, the process by whichmarket makers limit risks for forwarders. Employing their knowledge ofthe industry and other external market data (902), market makers maysell call options (910), which grant the right for forwarders topurchase capacity at a fixed price on a fixed date or in a fixed daterange. These call options may be purchased (912) by forwarders. Bypurchasing the call options, the forwarders can essentially insurethemselves against undue loss since the forwarders can be certain thatthe capacity covered by the purchased call options can always be boughtfrom the market makers, who have the obligation to sell at a fixed pricepursuant to the call options. Again, the market makers may cover therisks associated with the sold call options by buying other options,such as those covering fuel, currency, etc. on other public markets tooffset the risks associated with the sold call options.

[0133] Alternatively, market makers may perform yield management onbehalf of carriers, such as airlines or rail or trucking companies orshipping companies. For example, a carrier may know in advance that theyhave 2000 tons of shipping from Hong Kong to Oakland available in oneyear but may not wish to handle the process of monitoring the market andbe involved with timing/selling activities. If this carrier were to putthe entire available capacity out to the market at once, price may bedepressed, which hurts the profitability of the carrier. In these cases,market makers may, using the Futures and Options Module such as thatshown in 324 of FIG. 3 and FIG. 9, purchase a large capacity block (920)from the carrier and resells the capacity in smaller blocks over time(922) in the futures or option market, thereby stabilizing price andimproves profitability for the carrier.

[0134]FIGS. 10A and 10B show, in accordance with one embodiment of thepresent invention, the order fulfillment process for carriers andforwarders. From the shippers' forecasts (1002), which are disseminatedby FutureFreight, the forwarder assesses the risk level associated withthe forecast and determines the quantity of futures contracts topurchase (1004). Using a contract template provided by FutureFreight,the forwarder may then publish the open buy orders on the FutureFreightsystem (blocks 1008, 1010 and 1012). Likewise, the carrier determinesthe risk level associated with the forecast and the quantity of futurescontracts to sell (1006). Using a contract template provided byFutureFreight, the carrier may then publish the open sell orders onFutureFreight (blocks 1014, 1010 and 1012).

[0135] The open sell and buy orders may then be bundled to enhancetrading and matched (1016) by FutureFreight using the parametersspecified as matching keys. Various matching algorithms may be employed,including for example, first-come-first-served for potential matcheshave similar parameters. Market makers also participate in the processby buying and selling (1018) the futures contracts up to the time oftheir expiration. The same sequence occurs for different futurescontracts covering the different modalities required for the completeend-to-end transport.

[0136]FIG. 11 shows, in accordance with one embodiment, a contracttemplate for allowing a participant to specify a new contract to buy orsell to FutureFreight. In FIG. 11, the Required section shows exemplaryparameters that, in one embodiment, must be specified for a contract.The Optional section shows exemplary parameters that may be specifiedfor trading in the adjustment (i.e., secondary) market.

[0137] In the Required section, “Action” field may include a choice toBuy or Sell. “From” and “To” fields indicate the origination anddestination points. “Month” and “Day of Week” fields specify the time ofperformance. “Type of Order” choices may include Market or Limit. Marketremoves price restriction on an order. Limit requires the creator toassign a limit price to sell now lower than for a Sell, or no higherthan for a Buy order. The Limit price is then assigned in the box titled“Price”. “Service Level” field may include, for example, Express,one-day, three-day, etc.

[0138] Dimensional weight, also known as trade weight, refers to theweight used by the industry to compute shipping cost. This dimensionalweight may be different from actual weight. For example, a ton ofStyrofoam may weigh only one ton in actual weight but may be deemed tentons of dimensional weight due to the fact that Styrofoam has a lowdensity and may take up a lot of room in the shipping vessel. Thedimensional weight is represented by the “Dim Wt” field of FIG. 11.“Price” field indicates the pricing.

[0139] As shown in FIG. 11, the order may also be made private orpublic. If made private, only a set of designated participants isallowed to view the order. The “Type of Trading” may include twochoices, one for Futures and one for Options.

[0140] In the Optional section, exemplary fields for trading an airshipment order in the adjustment market are shown. The fields of coursemay be adapted to sea or trucking or any other mode as necessary.“Airlines” field indicates the airline or airlines of interest.“Position” field indicates the desired loading position on the plane.“Cargo Type” field indicates the type of cargo involved (e.g.,electronics, perishable, etc.)

[0141] Returning now to FIG. 10A, the contracts are assigned to carriersbased on first-come-first serve or another assignment basis uponcontract expiration (1022). The expiration date may be sometime beforethe actual performance date (e.g., two weeks). The forwarder may buy(1024) or sell (1028) the constituent capacity blocks (after they arebroken out from the purchased futures contract) using the adjustmentmarket facility (1026) of FutureFreight. Final reconciliation (1030)indicates that constituent capacity blocks purchased via the futurescontract mechanism (and optionally via the adjustment market) are readyto be booked on the actual flights/trucks/rail/ships.

[0142] Referring now to FIG. 10B, once final reconciliation is achieved,FutureFreight sends a reminder (1050) to the forwarder to start thebooking process. The forwarder may match the futures contract numberwith the shipment (1052). The forwarder may also generate an Airway Bill(AWB), which is an electronic document generated by the forwarder (1054)that contains the details of the shipment, including the futurescontract number with which the shipment is associated. Both the AWB andthe futures contract number are forwarded to FutureFreight for updatingthe transaction record (1056).

[0143] FutureFreight then sends (1060), via email or another electroniccommunication technique for example, a list of futures/AWB matches and alist of futures contracts that have not been converted into AWB. Thelist of unmatched futures contracts serve to highlight to the carriersof a potential problem, namely the possibility of unfilled or unclaimedshipping capacity. The carriers may then take action to resolve theproblem prior to actual performance date (e.g., by contacting theforwarder to resolve any misunderstanding or by putting the capacity onthe market to try to sell).

[0144] With the AWB, the forwarder may then book the capacity (1062)using, for example, e-booking. The forwarder then sends a listing to thecarrier that details the AWB/contract numbers of the shipments made,along with the rate and weight (1064). This data is employed to createan open receivable at the carrier (1066).

[0145] Thereafter, the forwarder places goods onto an appropriatecontainer and delivers the shipment to the carrier (1068). At shipmenttime, the carrier loads up the goods and transports the goods (1070) tothe final destination (1072).

[0146] During the financial reconciliation process, the carrier employsthe AWB, which was included in the shipment by the forwarder (1074) toinvoice the forwarder (1076). The forwarder pays the invoice (1078).

[0147] Since an order can be traded several times before being executed,there may be third parties that need to pay/receive money but who arenot named in the final airway bill and/or shipment bills. Examplesinclude traders who participate in trading on a particular contract whensuch contract is traded multiple times prior to being executed. Inblocks 1080, 1082, and 1084, these parties are billed and/or paid. Feesdue to FutureFreight for the service provided may also be collected byFutureFreight at this stage.

[0148] In one embodiment, FutureFreight receives a transaction fee forevery matched transaction. The fee is taken out of the settlement amountbetween the buyer and the seller. In one embodiment, FutureFreight addsthe transaction fee on top of the price assigned by the seller. Thebuyer sees the seller price inclusive of the transaction fee. When thebuyer pays the seller, the money is transferred through a ClearingHouse. The Clearing House then captures the fee from the money the buyerpaid and passes the fee on to FutureFreight. Other commission-basedarrangements are also possible.

[0149]FIG. 12A shows, in accordance with one embodiment, a control panelas seen by the forwarder when transacting futures. In an embodiment, thecontrol panel of FIG. 12A and other user-accessible panels areconfigured to be presented to the properly authenticated user when theuser employs a web browser to access FutureFreight website, which hoststhe FutureFreight trading platform. In block 1202 (“Market” or “MarketView”), the open (i.e., unmatched or unfilled) futures contract offersthat are submitted by forwarders, carriers, and/or market makers areshown. Each of these open futures contract offers include, for example,the origination and destination ports, the month of performance, theservice level, the bid and ask prices, and the weight of the shipment.

[0150] In block 1204 (“My Orders”), the unfilled futures contract offersfor this particular forwarder are shown. Each of the unfilled futurescontract offers include, for example, the origination and destinationports, the month of performance, the service level, the type of order,the limit price, and the weight.

[0151] In block 1206 (“My Commitments”), the futures contracts alreadymatched by FutureFreight for this particular forwarder are shown. Eachof the matched futures contracts include, for example, the originationand destination ports, the month of performance, the service level, theprice at which the futures contract is bought and the current price, theamount gained, the percentage of the shipper forecast represented by thematched futures contract, weight, and action (e.g., buy/sell).

[0152] In block 1208 (“Forecast”), the forecasts from shippers workingwith this particular forwarder are shown. Each forecast may include, forexample, the origination and destination ports, the identity of theshipper making the forecast, the month of performance, the cargo type,the volume forecasted to be shipped, the actual weight, the tradeweight, and ratings of the forecast quality. This forecast ratings maybe based on personal judgment of the FFS operator, based on theself-assessment of the shippers submitting the forecasts (“Conf” forconfidence level), and/or based on historical data, including acomparison between forecasted shipments and actual shipments in the past(“Qual” for Qualitative assessment). These ratings are discussed belowin connection with FIG. 13.

[0153]FIG. 12B shows, in accordance with one embodiment, a control panelas seen by the carrier when transacting futures. In one embodiment, thecarrier is not furnished with forecast data pertaining to specificshippers. Thus, in the “Forecast” panel of the example FIG. 12B, theforecasts and forecast ratings pertain to aggregate forecasts, not tospecific forecasts by specific shippers (as in the case of theforwarder's control panel of FIG. 12A).

[0154]FIG. 12C shows, in accordance with one embodiment, a control panelas seen by the carrier when transacting options. Thus additionaloption-related parameters (such as the strike price (“Strike”) orpremium (“Prem”) are also shown.

[0155] Once a futures contract expires, the participant's commitmentsmay be moved to an Adjustment Control Panel to facilitate adjustment.Generally speaking, FutureFreight may assume that a component isacceptable to the participant (such as a forwarder) unless thatforwarder specifies that adjustment or trading is desired with respectto that component. In FIG. 12C, the “Commitment” section shows thecomponents slated for booking. Any of these components may be moved tothe “Order” section of the Adjustment Control Panel of FIG. 12C in orderto initiate adjustment or trading (e.g., on the spot market). The marketview of the adjustment (e.g., spot) market is shown under the “Market”section of FIG. 12C. Through the Adjustment Control Panel of FIG. 12C, aparticipant such as a forwarder may buy/sell/trade individual componentsto adjust for any preference if the components obtained via the futuresmechanism do not fully satisfy the participant's preferences.

[0156] Note that if an end-to-end order involves multiple componentsutilizing either a single or multiple modes (e.g., sea, air, rail,truck), the adjustment of anyone component segment may require theadjustment of another component. FutureFreight may assign either a weakor strong link between any two component segments of an end-to-end order(using, e.g., a system-generated flag associated with internallygenerated identifiers that identify component segments). These links areshown, for example, in the column “LNK” under “My Orders” in FIG. 12D.The user can readily review data pertaining to the linked componentsegment by, for example, double-clicking on the link (e.g., “OC 121”),which may bring up details pertaining to the linked component segment inthe same or a different window.

[0157] If the link is weak, FutureFreight alerts the participant if theadjustment of one or more component segments may result in a mismatchvis-a-vis one or more of the other component segment in terms of time(e.g., adjustment of the air component may cause the shipment to missthe time of departure of the trucking component) or location (e.g.,adjustment of the rail component may require the arrangement of anadditional transportation transfer arrangement to accomplish the currenttrucking component) or upon violating any specified condition (e.g.,this shipment requires a special offloading or storage facility, and theproposed adjustment results in shipment to a particular port that doesnot have the required offloading or storage facility). If the link isstrong, FutureFreight may enforce the additional adjustments in order toresolve the mismatches or to remove the violation of a specifiedcondition. The specification of whether a link is strong or weak as wellas the specification of any specified condition associated with ashipment or a shipping facility may be pre-programmed in theFutureFreight database and/or specified by the participant.

[0158] Although FIGS. 12A-12D show only air futures from Asia to US-Westdue to the parameters specified for those examples (e.g., short timeen-route), it should be noted that the control panels may also showfutures contracts for other modes (e.g., sea) if such futures contractssatisfy the requirements (e.g., if a longer transit time had beenspecified, which makes sea transportation acceptable). In an embodiment,the futures contracts for all applicable modes may be displayed in thepanel, even in the same panel such as panel 1202 of FIG. 12A. In anotherembodiment, an option to filter for mode may be furnished (e.g., via adrop-down menu, not shown in FIG. 12A) to allow the user to see the dataunfiltered for mode or filtered for one or more modes only (i.e., toexclude some modes). The ability to view data pertaining to multiplemodes in Market View, My Orders, My Commitments offer unique advantagesand exceptional ease of use to traders and participants of the freightindustry in general.

[0159] Additionally, although only the panels “Market,” “My Orders,” “MyCommitments” and “Forecasts” of FIGS. 12A-12D are shown in a singlebrowser window, it is also possible to implement them in differentbrowser window so as to allow the viewer to see all panelssimultaneously but in different browser windows, to see only some butnot all panels. It should also be noted that some users may not beallowed to see all panels that other users in the same category may beallowed to see. For example, a low-level employee of a forwarder may beallowed to only see the “My Commitments” but not “My Order” based on hislogin ID, while another employee of the same forwarder with a higherauthority level may be allowed to see both “My Commitments” and “MyOrder.”

[0160] Generally speaking, shippers have an incentive to provide anaccurate forecast since an accurate forecast allows forwarders topurchase more capacity using low-cost mechanisms (e.g., futures) insteadof forcing forwarders to hedge the risks using higher-cost mechanisms(e.g., spot market purchases). The inventors herein have developed anelegant and novel qualitative test for enabling shippers to specify ashipper confidence level (SCL), which may be employed by theparticipants to evaluate the shipper's forecast of shipping needs.

[0161]FIG. 13 shows, in accordance with one embodiment, a tool forpermitting the shipper to specify the SCL. The various factorscomprising the SCL are shown in accompanying FIG. 14. These include, forexample, Demand, Manufacturing Readiness, Manufacturing Location,Capacity, Product, Lane, and Lane Stability. Furthermore, each of thesefactors is given a weight (e.g., Manufacturing Readiness is weighed at25% of the total value wherein Lane Stability is weighed at only 5%). Byadjusting the slide (e.g., 1302 a-1302 g) associated with each of theSCL factors, the shipper can communicate his confidence in his forecastbased on articulable criteria. The maximum confidence level, assumingthat the shipper is 100% confident in every one of the factors, is 100%.

[0162] Using the tool of FIG. 13, the shipper may indicate on a slidingscale his subjective evaluation of each of these factors. For example,the customer demand may be indicated by the shipper to be between lowcertainty and high certainty for the products to be shipped.Manufacturing Readiness may vary between being unprepared to beingcompletely ready, in terms of availability of supplied materials,internal resource readiness used to build products or parts, and/or anyset up required to build the products/parts. Manufacturing location mayvary between a new location (riskier) and an already establishedlocation (less risk). Capacity may vary between 100 kg (less risk) toover 10 tonnes (high risk). The maturity of the Product may vary betweenbeing a new product (more risk) to a product over 6 months old (moremature). The Lane factor evaluates the number of months a particularcommunication lane has been used for shipping. This rating may varybetween being a new lane (high risk) to an established lane (less risk).Lane Stability evaluates the stability of the lane being used forshipping. Lane Stability may vary from being highly risk to being highlystable. Once the shipper specifies the values for these SCL factors viathe slides, an estimated SCL may be estimated (shown to be 39 & in FIG.13).

[0163] In addition to the forward-looking SCL, FutureFreight alsogenerates a Forecast Quality Index (FQI) to assist participants inevaluating forecasts from shippers (and even in evaluating capacityforecasts from carriers). FQIs provide a quantitative measure of thequality of the forecast and are statistical functions based on thevariance between the forecast data and the actual ship data. FQIs areobtained by mining historical records pertaining to forecasts and actualship data from shippers. FQIs may be performed on a location/customerbasis (e.g., a XYZ plant in Singapore) or may be aggregated at acustomer level/geography basis (e.g., all XYZ facilities in SoutheastAsia).

[0164]FIG. 15 shows, in accordance with one embodiment of the invention,how FFS calculates both the qualitative and the quantitative assessmentvalues for a shipper's forecast. The process begins with a forecastprovided by, for example, the shipper's ERP (Enterprise ResourcePlanning) software (1502). The forecast is converted to volume by laneand/or timeframe (1504), and the shipper may indicate his ownqualitative assessment (Shipper Confidence Level in 1506) of theaccuracy of the forecast (e.g., using the tools and techniques discussedearlier in connection with FIGS. 13 and 14.

[0165] To calculate the quantitative Forecast Quality Index (FQI), FFSfirst extracts past forecast data from a data warehouse of pastforecasts (1506). Furthermore, actual historical shipping volume mayalso be extracted from a data warehouse of historical shipment volume orfrom the shipper's ERP software (1508). The historical forecast data andactual ship data may then be sorted by geography or by another sortingcriteria to facilitate comparison. In block 1512, the historicalforecast data and actual ship data are compared (1512). The FQI (for thegeography in the example of FIG. 15) is generated (1514), which ispublished by FutureFreight along with the SCL and the forecasts by theshippers. Of course, FFS can also sort the historical forecast data andactual ship data using another criteria to furnish the participants witha different way to assess the forecast quality if desired. Theforecasts, the FQI, and/or the SCL are then published to theparticipants using an appropriate FFS user interface (1516)

[0166] In one embodiment, all traders (i.e., any participant who isinvolved in the buying and selling of futures or options) are furnishedwith aggregate forecasts data and forecast ratings that do not identifya particular shipper. Further, the freight industry indices that do notspecifically identify a particular participant are also furnished to alltraders by FutureFreight. This enables traders to intelligently evaluatethe buying/selling of futures, thereby increasing confidence in futurestrading and increased participation in the futures market, which lead toimproved liquidity.

[0167] On the other hand, due to business competition, shippers,forwarders, and carriers have a strong desire to keep certain dataconfidential from potential competitors and/or the trade press. Theinventors herein further recognize that some participants may fraudulentpose as being in a different role (e.g., a shipper posing as a forwarderor market maker) in hope of obtaining competitive information about hiscompetitors. The challenge thus is to create a system that can furnishinformation to encourage fair and efficient fulfillment of freightorders (including trading by traders) while at the same timesafeguarding the competitive interests of the participants.

[0168] In an embodiment, each participant is authenticated and/orcontractually obligated to prevent the participant from mis-using theinformation obtained from FutureFreight to the detriment of otherparticipants. Authentication may include log-in and password protection.Authentication may also lead to restriction, based on the participant'sidentity, to access only one or specified ones of the applicationwindows (e.g., Forecast, My Orders, My Commitment or Market View).Authentication may also lead to restriction, based on the participant'sidentity, to limit functional authorization to buy/sell/cancel orders.

[0169] In an embodiment, the default data security options may specifythat the Summary Screen and the Market View are visible to all userswhile My Orders and My Commitments are only visible to participants whoinitiate those orders. However, these default data security options maybe modified as will be discussed hereinbelow, which may be consideredadditional or alternative to the default data security options.

[0170] One of the strengths of FutureFreight is the rich set of datasecurity options, which allow participants to tailor who can receivewhich specific set of data. Thus, in addition to the default datasecurity options, there may exist data security options that can bespecified by participants. These participant-specified data securityoptions may supplement or supersede the default data security options.Thus, for example, even if FutureFreight furnishes certain informationto a certain participant or group of participants pursuant to a defaultdata security option, any participant can restrict informationpertaining to himself, and such participant-specified data securityoption would over-ride the system default data security option.

[0171] For example, in an embodiment, a participant (e.g., a shipper)may elect to limit certain information (e.g., the shipper's shipment orforecast data) to a specific set of recipients (e.g., a specific set offorwarders). As another example, a shipper may further limit aforwarder's access to shipment and/or forecast data. Instead of allowinga specific forwarder access to data pertaining to all shipment lanes, ashipper may restrict that forwarder to information pertaining to, forexample, only one or more specific shipment lanes, one or more specificlocations, one or more modes, and/or one or more time periods.

[0172] Shippers, who may be manufacturers, naturally have a strongdesire to keep their shipment data confidential since such data, ifrevealed in an untimely manner, can be used to adverse effects bycompetitors. Thus, in an embodiment, shippers do not access any data(unless they are registered traders such as forwarders). Alternativelyor additionally, in an embodiment, a shipper only sees the rating of hisown forecasts. Alternatively or additionally, in an embodiment, ashipper can only see freight indexes with average prices. Alternativelyor additionally, in an embodiment, a shipper may even be prevented fromviewing aggregate forecast data (based on geography, for example) tokeep that shipper from being able to deduce information about hiscompetitors who may be shippers from/to the same location. Alternativelyor additionally, in an embodiment, unless there is a need, a shipper isnot entitled to view individual orders (buy or sell) from forwarders,carriers and market makers and/or the market view (the view of thefutures trading market, including data pertaining to trades in futurescontracts). This is to prevent a shipper from inappropriately obtainingdata (such as forwarder's cost data).

[0173] Generally speaking, forwarders may be allowed access to aggregateforecasts by shippers (based on geography and/or time, for example). Toensure additional data security, information identifying specificshipment orders or forecasts by a specific shipper may not be furnishedto a forwarder, unless that forwarder is specifically approved toreceive such information by the shipper. Alternatively or additionally,a forwarder may not access the capacity release orders by carriers,unless access to such information is specifically authorized by thecarriers. Forwarders are generally permitted to see the market view aswell as freight indices.

[0174] Carriers are generally not allowed to access a specific shipper'sindividual forecast data, unless such is specifically authorized.Generally speaking, a carrier may view the aggregate forecast data(e.g., by geography), along with aggregate forecast ratings. A carriermay also access the market view, along with freight indices.

[0175] A market maker only accesses data necessary to evaluate andperform trading in the bundled futures contracts. Accordingly, it isgenerally not necessary for a market maker to access the forecast datapertaining to a specific shipper. As another example, a market maker maynot be allowed to view the individual orders from specific forwarders orspecific carriers. Generally speaking, a carrier may view the aggregateforecast data (e.g., by geography), along with aggregate forecastratings. A carrier may also access the market view, along with freightindices.

[0176] While this invention has been described in terms of severalpreferred embodiments, there are alterations, permutations, andequivalents which fall within the scope of this invention. For example,given the disclosure, one skilled in the art can apply many of thetechniques, which have been disclosed using futures to facilitatediscussion, to options and/or a combination of futures and options.Accordingly, embodiments of the invention apply to derivative contracts,which include futures contracts and/or options contracts. It should alsobe noted that there are many alternative ways of implementing themethods and apparatuses of the present invention. It is thereforeintended that the following appended claims be interpreted as includingall such alterations, permutations, and equivalents as fall within thetrue spirit and scope of the present invention.

What is claimed is:
 1. A network-based, computer-implemented method ofenabling a first user to purchase derivatives in freight capacitytransported via at least two modes of transportation between a firstlocation and a second location, comprising: receiving capacity releasedata from a plurality of carriers, said capacity release data pertainingat least to said two modes of transportation; bundling capacity releasesin accordance with a geographic bundling criterion, thereby creating aplurality of available derivative contracts; receiving a derivativepurchase request from said first user for capacity between said firstlocation and said second location, said derivative purchase requesthaving contract requirements that specify at least a shipment volume anda performance time; obtaining from said plurality of derivativecontracts a plurality of potentially suitable derivative contracts thatsatisfy said contract requirements; selecting a subset of said pluralityof potentially suitable derivative contracts to satisfy said derivativepurchase request, said subset including at least a first derivativecontract for a first mode of said two transportation modes and a secondderivative contract for a second mode of said two transportation modes,said two transportation modes represent two from a set of air mode, seamode, rail mode, and truck mode; rendering said plurality of potentiallysuitable derivative contracts displayable in a first data section of acomputer window on a computer display screen for viewing; andsimultaneously rendering user-specific forecast data displayable in asecond data section of said computer window, said user-specific forecastdata pertaining to demand forecasts by shippers between said firstlocation and said second location, said user-specific forecast data doesnot include forecasts associated with any shipper that has not expresseda prior implicit or explicit authorization for said first user to viewtheir forecast data.
 2. The method of claim 1 wherein said first user issimultaneously a shipper and a forwarder.
 3. The method of claim 1wherein said first user is a forwarder and not a shipper.
 4. The methodof claim 2 wherein a data item in said user-specific forecast dataincludes only a portion of a total volume forecast from a first shipper,said total volume forecast represents a total volume of shippingrequired by said first shipper between said first location and saidsecond location during a time frame that fall within a time framespecified in said contract requirements.
 5. The method of claim 4wherein said portion is limited in accordance to a lane restrictioncriterion.
 6. The method of claim 4 wherein said portion is limited inaccordance to a geographic restriction criterion.
 7. The method of claim4 wherein within said portion is limited in accordance to a moderestriction criterion.
 8. The method of claim 1 wherein said derivativepurchase request represents futures purchase request.
 9. The method ofclaim 1 wherein said derivative purchase request represents optionpurchase request.
 10. The method of claim 1 wherein said computer windowis implemented via an Internet Browser.
 11. The method of claim 1wherein said user-specific forecast data includes self-assessedqualitative ratings by said shipper, said self-assessed qualitativeratings being performed using at least four of a set of criteria thatincludes demand, manufacturing readiness, manufacturing location,capacity, product, lane, and lane stability.
 12. The method of claim 11further comprising displaying, upon expiration of a first purchasedderivative contract, data pertaining to said first purchased derivativecontract along with linkage data between a first component segmentcovered by said first purchased derivative contract and a secondcomponent segment covered by a second purchased derivative contract,said first component segment and said second component segmentrepresenting component segments of a single end-to-end shipping order.13. The method of claim 12 further comprising enabling said first userto trade said first purchased derivative contract in an adjustmentmarket after said expiration.
 14. The method of claim 1 wherein saidplurality of derivative contracts represent futures contracts.
 15. Themethod of claim 1 wherein said plurality of derivative contractsrepresent option contracts.
 16. A network-based, computer-implementedmethod of enabling a market maker to trade in derivatives in freightcapacity transported via at least two modes of transportation between afirst location and a second location, said at least two modesrepresenting two of a set that includes air, sea, rail, and truck,comprising: receiving capacity release data from a plurality ofcarriers, said capacity release data pertaining at least to said twomodes of transportation; bundling capacity releases in accordance with ageographic bundling criterion, thereby creating a plurality of availablederivative contracts, a number of derivative contracts in said pluralityof available derivative contracts being smaller than a number ofcapacity releases represented by said capacity release data; renderingsaid plurality of available derivative contracts displayable in a firstpanel of a computer window on a computer display screen; simultaneouslyrendering aggregated forecast data displayable in a second data sectionof said computer window, said aggregated forecast data pertaining todemand forecasts by a plurality of shippers between said first locationand said second location, said aggregated forecast data does not revealdata that links a specific shipper to a specific shipment quantity. 17.The method of claim 16 wherein said computer window is implemented viaan Internet browser.
 18. The method of claim 16 wherein said aggregateforecast data includes self-assessed qualitative ratings by saidplurality of shippers, said self-assessed qualitative ratings beingperformed using at least four of a set of criteria that includes demand,manufacturing readiness, manufacturing location, capacity, product,lane, and lane stability.
 19. The method of claim 16 wherein saidcapacity releases are further bundled in accordance with a time framecriterion to create said plurality of available derivative contracts.20. The method of claim 16 wherein said plurality of derivativecontracts represent futures contracts.
 21. The method of claim 16wherein said plurality of derivative contracts represent optioncontracts.